IPO ... Gas Malaysia

Gas Malaysia Bhd, part of an energy distributor linked to Malaysian billionaire Syed Mokhtar Al- Bukhary, wants to raise about RM734 million (US$234 million) in an IPO.

Existing stockholders, including MMC Corp, plan to sell 333.8 million shares with an indicative price of RM2.20 each for individual investors.

The three major shareholders of Gas Malaysia Bhd will receive a total of RM734mil from the sale of their shares in the former's impending initial public offering (IPO).

Gas Malaysia's IPO will entail only an offer of sale of 333.8 million shares at RM2.20 a piece.

The three main owners of Gas Malaysia stock are MMC-Shapadu (Holdings) Sdn Bhd (55%), Tokyo Gas-Mitsui & Co Holdings Sdn Bhd (25%) and Petronas Gas Bhd (20%). The three will rake in RM403mil, RM183.6mil and RM146.8mil respectively from the sale of Gas Malaysia shares.

Post IPO, MMC-Shapadu would see its stake reduced to 40.7%, while Tokyo Gas-Mitsui at 18.5% and Petronas Gas with a 14.8% stake.

MMC-Shapadu is a 76% owned subsidiary of MMC Corporation Bhd, while Shahpadu Corporation Sdn Bhd owns the rest of the stake, a company that dabbles in a diverse range of businesses ranging from oil and gas to property development.

In February 2012, Gas Malaysia signed a gas supply agreement with Petronas for the supply of 492 million standard cubic per day (mmscfd), a 29% increase from its previous supply of 382 mmscfd. The new agreement starting January 2013 will be for a duration of 10 years with an option to renew for another five years.

For its financial year ended 2011, the company hit a revenue of RM2bil from RM1.8bil recorded previously, driven by the gas tariff revision announced by the government, which took effect on June 1, 2011, in addition to increase in sales volume.

However, its net profit decreased by 23% to RM229mil in 2011 from RM298mil recorded in the previous year due to the new gas tariff, which resulted in Gas Malaysia's average margin declining by 48.9% to RM2.02 per mmBtu, or just 12.5% as margins compared to 26.3% recorded previously.

The company intends to pay out 100% of its net profit for its financial year ending Dec 31, 2012, and subsequently targets a payout ratio of not less than 75% of its net profit moving forward.

Established in 1992 to provide an alternative source of energy to the country, it sell, market and distribute natural gas as well as construct and operate the Natural Gas Distribution System in the peninsular.

Gas Malaysia is the sole licensed seller of natural gas in Peninsular Malaysia. It also has rights to supply liquefied petroleum gas in the region.

It operates a network of approximately 1,800 km of pipelines throughout the peninsular, and source its natural gas supply from Petronas via the Peninsular Gas Utilisation Transmission System which is owned and operated by Petronas Gas Bhd.

While consumption of natural gas in Malaysia has grown from about 315 bcf (1 bcf equals to 1 trillion BTUs) in 1990 to an estimated 1,260 bcf in 2010, the ability to satisfy this demand has been constrained since 2007 due to the shortage of supply.

However, with the completion of the liquefied natural gas regasification facility in Malacca, it will provide a new source of allocation to Peninsular Malaysia. In addition, the volume of gas from the North Malay Basin project will also help sustain the natural gas supply to customers in the Peninsula.

Gas Malaysia is a strong dividend-recurring stock with more potential upside with the new Petronas contract and its commitment to pay most of its profit back to shareholders.

In terms of growth for Gas Malaysia, its infrastructure is already quite well developed with its extensive reach to most industrial estates in the peninsular that entails little capital expenditure to expand its operations.